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RBNZ Q4 Review and effects on 2014 Rental Property Management and rental price inflation

The Reserve Bank of New Zealand (RBNZ) has made its fourth quarter announcement today, I will quickly summarise and opinionate what I find relevant economically for myself as a property manager and rental property investor our clients involved with rental property investment in Auckland.
Keeping tabs on the economy is important for us because it gives us indications of the reaction we experience on the value of property investments in auckland and the rental price inflation that we as property managers ultimately have to forward onto tenants, and we don’t like throwing surprises (especially bills) on anyone (so we give fair warning about the real rental inflation to expect every review).

The OCR has held at 2.5%, but there is increasing indications that the RBNZ will seek to lift the rate to 2.75% in the first quarter next year and somewhat further then onwards (although ANZ economists foresee a milder tightening (increase in OCR) than what is expected in the following quarters).
Their views are a lot to-do with the balance being struck between our GDP and Inflation, but their views hinge on our NZD remaining strong and staving off inflation. It’s a balancing act between the exchange rate and inflation from construction demand.
Their view point is becoming increasingly confident that we are entering a period of stability in the economy, and therefore there is no need for such a low OCR.  The LVR restrictions are yet to show any real results so with house price inflation becoming a concern and prominent Economists making grim predictions about the New Zealand housing market risk it is imaginable that they will be hoping the OCR will gently slow house price inflation, although the view of all parties is that house price inflation will persist, so don’t sound the alarm bell yet.

In my view (which is based only on what I read into economist’s articles and the RBNZ viewpoint,) 2014 will bring OCR increases, but just how much will depend more on the macro-economy. So with 2014 increasing OCR and our still lagging housing supply we can expect rental price inflation to start to warm up (this is a standard reaction to increasing interest rates).

Please view ANZ economist report here (should be available soon) for a great brief summary: ANZ Economics reports

 



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